Real Assets Adviser

April 1, 2023: Vol. 10, Number 4

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From the Current Issue

California’s high-speed rail was a fantasy from its inception

In 2008, California voters approved $9.95 billion of state bond funding as seed money to build an 800-mile high-speed rail (HSR) network connecting Los Angeles and San Francisco, and the Central Valley to coastal cities, at speeds of up to 220 miles per hour, with an expected completion date of 2020.

Advanced nuclear fits South Pole energy needs

Getting fuel to the southernmost point on Earth takes a lot of energy, and advanced nuclear could be the answer the South Pole has been searching for. The South Pole is located on Antarctica, and hundreds of scientists and staff live and work at the Amundsen-Scott South Pole Station to support a variety of research, including geology, meteorology, climatology, astronomy and more. All of these activities use energy, and according to the Antarctic Sun, “fuel may be the most important resource at the bottom of the world.”

Inside the mind of the SEC

As a former SEC examiner, I seem to have an innate ability to know what the SEC is going to do before they do it. Lately, with the buildup of so much rulemaking, many chief compliance officers and others in the industry seem to be pondering the question of how the SEC will act in 2023. So, let’s dive into it.

Mounting insurance premiums are vexing property owners in climate-risk states

Rising insurance costs are a growing problem for commercial property owners, particularly in states with increasing climate-related risk such as Florida and Texas, where costs are rising upward of 50 percent and starting to threaten new development and property sales. Although rates are rising nationwide, the problem is most acute in states that are experiencing a growing number of extreme weather events that include hurricanes, winter freezes and wildfires. Hurricane Ian, for example, caused upward of $50 billion of damages as it ripped through Florida this past September.

The next great apartment amenity: EV charging and the opportunity for multifamily investors and operators

If you think you’ve been seeing a few more Teslas on the road lately, your eyes are not deceiving you. In the first half of 2022, global electric vehicle (EV) sales shot up 62 percent year-over-year, skyrocketing to more than 4 million vehicles sold. Municipalities across the globe are committing to EVs as a path toward a cleaner future for transportation, and as innovation in the sector continues and EVs become more affordable and accessible to the general public, this widespread adoption is only expected to grow.

The feasibility of converting office to housing

Office buildings, the endangered species. A shock to the environment — the COVID pandemic, economic shutdown, and the emergence of a relentlessly home-based workforce — poisoned the ground. No, office space will not go extinct but, like many threatened species, some of the most astute real estate observers believe it will forever be diminished.

Electricity grid long enough to reach sun is key to the climate fight

Imagine it’s 2050 and the world has managed to reach net-zero emissions. If you deconstruct the electricity grid and lay it out in a single line, those cables will stretch all the way to the sun. A 94 million-mile supersized grid is what’s needed to power a greener future and avert climate disaster, according to BloombergNEF. That’s more than double the length of the grid today.

Shale production growth will slow and eventually turn negative

Crude oil fundamentals are very tight and risk getting considerably tighter. Investors continue to starve energy companies of much-needed capital, the lifeblood of a solid supply base. Although the trend of lower spending has been in place for several years, our models tell us we are nearing a critical inflection point: The growth in shale oil production — the only source of non-OPEC+ production growth over the past two decades — may be coming to an end.

Last Boeing 747 rolls out of the factory: How the ‘queen of the skies’ reigned over air travel

On Sept. 30, 1968, the first Boeing 747 rolled out of its custom-built assembly plant in Everett, Wash., From the beginning, everything about the plane once known as the “queen of the skies” was big. It was the first widebody “jumbo jet” ever built. About 50,000 construction workers, mechanics, engineers and others took it from an idea to the air in just 16 months in the late 1960s. Until 2007 and the introduction of the Airbus A380, it was the largest civilian airplane in the world.

An old idea becomes new again: Car-free cities

Long before the invention of the internal combustion engine and the motorized vehicle, cities and towns were, of course, car-free. To this day, the results of those early developments are seen in many Old World cities as highly prized by denizens for their livability and charm — with their remaining enchanting enclaves of winding, narrow alleys just wide enough to accommodate foot or hoof.

The appeal of multifamily projects

The strong performance of the multifamily real estate sector has been turning the heads of real estate investors throughout the past many years. This is certainly no surprise, given the number of tailwinds at its back, as well as its reputation for delivering strong performance throughout investment cycles. For these reasons, key players in the multifamily space say the sector’s red-hot run is expected to carry on well into the future.

Getting ahead of inflation: There’s value in preparing portfolios for different scenarios

The year 2022 caught investors off guard, with persistently high inflation and aggressive responses from central banks worldwide. Could 2023 be more of the same? Potentially. There are also reasonable arguments to be made for an environment where inflation is declining. Yet another, worse, potential outcome is stagflation, where economic growth stalls but inflation remains high.

Tax Update: Like-kind exchanges and carried interest on Biden chopping block

President Biden’s proposed fiscal year 2024 federal budget proposes $4.5 trillion in additional taxes and resurrects previous proposals, such as eliminating like-kind (Sec. 1031) real estate exchanges. The carried-interest tax break is also proposed for elimination under the Biden plan. In addition, the plan would end a provision that allows wealthy individuals to accumulate savings in tax-favored retirement accounts intended for middle earners. Biden would limit the amount taxpayers with incomes of more than $400,000 can hold in Roth individual retirement accounts.

Talking Points: Quotations from people in the news

Mike Wirth, CEO of Chevron: “Both oil and gas took four decades to go from 1 percent of global energy supply to 10 percent. We’ve seen $4.5 trillion invested in wind and solar over just the last decade, and it’s moved from 1 percent of global energy supply to 3 percent.”

It has become boom time for satellite manufacturers

Satellite industry pure-plays such as Maxar, BlackSky and Planet Labs earned billions of dollars’ of contracts in 2022, spread out over the next decade, and new deals have continued to roll in this year. That has helped to boost the financial positioning of these smaller firms as they work to compete with defense industry mainstays like Raytheon, Northrop Grumman and L3 Harris.

Research Roundup: April 2023

J.P. Morgan Private Bank alerts investors that the future of food is coming fast, and suggests ways clients might profitably invest in innovations that are designed to feed the world. Read its conclusions here.

5 Questions: Crowdfunding and the blockchain movement

Crowdfunding participation is expected to reach around $3.62 billion by 2030, for a compound annual growth rate of 14.5 percent, according to Contrive Datum Insights. Meanwhile, investment minimums for crowdfunded real estate projects has dropped to just $1,000 in some cases, opening the asset class to the masses.

Regulation Update: The importance of Form ADV amendments and what RIAs need to know

As a financial adviser, it’s essential to understand your obligations when it comes to filing Form ADV with the SEC or the state. Many firms are preparing for their Form ADV Annual Updating Amendment filing. This task must be completed within 90 days of the firm’s fiscal year-end, typically by March 31. Firms must also be aware of Other-Than-Annual Amendments, which can happen at any time, due to material changes in your business. Other-Than- Annual Amendments must be filed within 30 days of any material change occurring.

U.S. industrial market benefiting from rise in onshore manufacturing

A rise in onshore manufacturing operations by U.S. companies is creating more demand for factory space nationwide, according to CBRE. The 3.8 billion-square-foot manufacturing facility market recorded a record low 3.4 percent availability rate at year-end 2022 after annual absorption of 53.8 million square feet — the highest amount since 2016 and the second-consecutive year that net absorption has surpassed 50 million square feet.

Profile: Jamie Hopkins, managing partner of wealth solutions at Carson Group

One day Jamie Hopkins started running. He ran the next day as well and continued the regimen for 3,004 consecutive days and an average of 4.5 miles per run. (Yes, that’s eight years and two months without missing a day of road work.) That easily beats “iron man” Cal Ripkin Jr.’s 2,632 consecutive baseball games played, albeit not nearly as celebrated as the baseball hall-of-famer’s record.

Are you in the super-hot market to buy a private jet?

The demand for private aircraft has surged the past few years since the early days of the COVID-19 pandemic. Indeed, demand remained elevated throughout 2022 despite stock market volatility, inflation and geopolitical issues, and we have been inundated with calls from clients asking about their best options to own and fly privately.

A fee-based vision for RIAs

As noted in an earlier column, research conducted by consultants such as Casey Quirk has made an indisputably compelling case for including alternatives in individual as well as institutional portfolios — particularly in the relatively low-yield, low-total return investment environment for traditional equities and fixed-income portfolios, the precise environment we’re facing today.

Multifamily investor demand to continue evolving through 2023

Multifamily transaction activity slowed sharply in the second half of 2022, though perhaps not as much as feared, while investor demand continued to gravitate toward the Sun Belt. Those trends are continuing into 2023. Deal flow is stalled by pricing uncertainty and multifamily investors are increasingly focused on markets with growth in jobs and population. Whether and how much deal flow picks up in 2023 will depend to a large degree on stability in the capital markets.

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